Ray Dalio sheds light on investing during the most uncertain and challenging times in living memory.
Ray Dalio is a macro investor legend, a student of history, politics, economics, and geopolitics with a knack of piecing everything together to make sense of where we are and are likely to be heading.
Ray Dalio sheds light by sharing what he has learned through his investment career spanning many decades.
“One of the things I learned since 1971 and repeatedly is that surprises that happened in my lifetime to me in many cases were things that didn’t happen in my lifetime, but happened in prior lifetimes,” he said.
“One of the things I learned since 1971 and repeatedly is that surprises that happened in my lifetime to me in many cases were things that didn’t happen in my lifetime, but happened in prior lifetimes”
Ray Dalio recounts when he was a clerk of the New York Stock Exchange in 1971, August 15, when Nixon took the UD dollar off the gold standard. “Essentially defaulting,” he said.
Ray Dalio remembered everyone expecting a market panic sell-off, instead, the market rallied.
Play the game long enough, and you learn to expect the unexpected.
“I studied history and found that the same thing happened on March 5 1933 with Roosevelt doing the same thing on the radio,” he said.
“There are three big things happening in my life that did not happen.
The first is the amount of monetization of debt, and how it is carried through the system.
Second is the amount of internal economic and social conflict that is now going on.
The third is the rising of great power to challenge the existing world order, the existing world power of China and the existing political system in which I was born in 1949, four years after the new world order began in 1945,” said Ray Dalio.
“There are three big things happening in my life that did not happen”
Ray Dalio sheds light on the US standing, post-WW2 and its continuing decline
“The US was more dominant then it had 80% of the world’s gold, 50% of the world economy, and the only monopoly on military power because of nuclear,” said Ray Dalio.
“It’s decline led me to do research,” said Ray Dalio.
So Ray Dalio embarked on a knowledge journey studying the rise and decline of empires and their currencies, which lead to his famous piece, “Principles For Dealing With the Changing World Order, which is read by senior politicians and diplomats.
Ray Dalio believes that demand and supply for credit are making advanced economies move into a stagflation environment.
Trade-offs between the two will become difficult.
“Moderates are leaving, and you have populists who will fight to win and won’t accept losing” – Ray Dalio
Ray Dalio sheds light on how the rules of the game are changing
He notes that we have grown accustomed to where economic rules dictate so that those producing more efficiently and cheaply win the business. The Economic rules raised the living standards, he said.
Ray Dalio believes that ideology could override economic rules in a new east versus west cold war
He sees inflation pressures in the wake of monetary expansion and the end of the paradigm where everyone believes and wants everything to keep going up. “That creates a policy where everyone is long,” he said.
“That creates a dynamic where there must be a decline in real wealth,” he added.
Everyone is holding bonds or debt assets, believing that inflation will continue to be a non-entity.
Ray Dalio sees this paradigm shift, the end of a 40-year bull market in bonds, akin to bond investors getting a punch in the face.
Ray Dalio sheds light on the market by revisiting the 1970s decade of stagflation
Higher inflation and lower economic growth could be a feature in the coming decade.
Ray Dalio believes we could see a period of political polarity and social disharmony going forward.
He believes there could be more political extremism as we approach the 2022 elections. “Moderates are leaving, and you have populists who will fight to win and won’t accept losing,” warned Ray Dalio.
Ray Dalio thinks there will be more populism of the left and right fighting for their contingency.
“History has shown that when people believe the causes are greater than the system, then the system is in jeopardy” – Ray Dalio
Ray Dalio sheds light on how it could all end.
“History has shown that when people believe the causes are greater than the system, then the system is in jeopardy,” he said.
But history has also shown that when the ruling elite senses a popular uprising, to save their neck, the anger is exteriorized. So a foreign enemy is identified or fabricated, and war declared.
Are we not witnessing this today with the sinking of the Russian flagship, Moskva using western intelligence, western weapons, and Ukrainian fingers?
Moreover, Finland and Sweden joining NATO, which shares a border with Russia, is a further provocation, and it was the reason why Russia invaded Ukraine.
What happens if the leaders of these Scandinavian countries are coaxed into positioning NATO nukes on their territory, which shares a border with Russia? The barking of NATO at the doors of Russia could provoke a first nuclear cease and desist bear strike in some remote regions of northern Europe. Game over if this escalates.
Ray Dalio sheds light on investing in these turbulent times
He believes that social, political, and geopolitical conflicts will play a significant role in future investing.
I want to look at countries that have strong balance sheets, as well as the individuals that make up those countries.
Ray Dalio believes internal conflicts, poor finances and even international war will be defining characteristics.
But here is the zinger to Dalio sheds light on investing…
“Central banks can not let capitalism, which is dependent on those other assets performing a higher return than cash, let that continue, so they come in and produce money,” said Ray Dalio.
In other words, markets are rigged to the upside because capitalism needs investors.